Personalized change

Nathan Nagel discusses, from a top line perspective, how the paradigm of personalized medicine may change the structure and dynamics of the whole biopharma market.

Today’s drug development has clearly reached its limits, as indicated by a decreasing total number of new drugs approved each year despite skyrocketing R&amp,D costs. The core rate limiting factor to the current methodology is the difficulty of replicating human biochemistry in a laboratory. Firms have now recognized this and as the knowledge base of a disease and the molecular basis for drug effectiveness becomes clearer, pharmaceutical firms are more likely to develop successful drugs by targeting specific biologic pathways.

This targeted approach will see an increased number of stratified drug trials conducted with pre-selected focus groups. By understanding who target patients are, based on molecular profiling, pharmaceuticals firms can improve clinical trials by focusing on populations more likely to respond. As a result, the success rates of clinical trials should improve, while costs decline. Furthermore, we should see an improvement in time spent from drug discovery to clinical approval. A recent example is Crizotanib, an ALK inhibitor used for treatment of non-small cell lung cancer, this drug took only four years from the discovery of ALK translocations in NSCLC in 2007, to FDA approval in 2011. Reductions in development time will lower costs, but more importantly, lower the time to market thus increasing the number of years the drug generates revenue in its patent life. The major technical drivers of personalized medicine are based in molecular biology and bioinformatics.

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“…pharmaceuticals firms can improve clinical trials by focusing on populations more likely to respond.”

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The complementary assets required to achieve marketplace success will likely change. For example, direct-to-consumer approaches that raise awareness of molecular profiling for personalized care may become a strategic complement to educating health care providers. Strong sales and marketing capabilities will still be essential for success but the shape of these competencies will change. Scale will still yield benefits as widespread access to doctors and hospitals will remain a source of competitive advantage. However, the ideal personalized medicine sales force will become focused around specific therapeutic areas and more knowledgeable about the underlying mechanism of disease and treatment. This will mean no more reps with English Degrees, but actual Medical Representatives with PhDs or MDs.

Consequently, I believe the drug industry will evolve into more of a segmented niche market with greater numbers and varieties of organizations taking part. Resources that support efficiently and carefully executed clinical trials will remain an essential determinant of value capture in a pharmaceutical industry built around personalized medicine. However, certain features of the clinical development process will change. Trials for targeted treatments will enable “real-time” adjustments based on subpopulation responses. Portfolio management will still be critical in a personalized medicine world. The smaller markets for targeted therapies will focus pharma more toward unmet needs.

High-risk / high-reward projects that open up new therapeutic areas may become more of the norm. Skillful navigation through a changing FDA approval process will be essential. Companion biomarker testing will be of prime importance to ensure the proper patients receive targeted therapies. Clinicians will need training in the utility of molecular profiling, and reimbursement programs for these tests put into place. And, sales and marketing teams will need to assume a stronger, focused supportive role as clinicians become better versed in genetics and disease mechanisms.

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“Bioinformatics become a critical input to the improvement of existing products and discovery of new treatments.”

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While there are still economies of scale and economies of scope inherent in R&amp,D, and to some extent marketing, these economies cannot be exploited as effectively in a personalized medicine world. As new personalized medicine treatments are developed, tested and distributed, new data will be generated regarding the link between a drug’s mechanism of action and a patient’s genetic make-up. This data will then inform both the development of better diagnostic tools and improve the discovery process for new personalized medicine treatments. This loop essentially captures the industry learning curve. Spillovers will be low. Therefore, firms who can capitalize on these reinforcing loops early will have an advantage in the marketplace. This particular loop has several implications for the pharmaceutical value chain, including the addition of diagnostics and bioinformatics.

Bioinformatics, on the other hand, will allow collecting, analyzing and visualizing the massive amounts of data that match genetic information to particular disease pathways and treatment outcomes. Bioinformatics become a critical input to the improvement of existing products and discovery of new treatments. As for integration across the value chain, we envision that over the long term, personalized medicine drug development firms will gain competitive advantage by integrating into these activity areas. The combination of low spillover and synergies that exist between treatment delivery, diagnostic development, clinical data gathering and bioinformatics suggests that the benefits offered by these reinforcing loops will make it attractive to vertically integrate. On the other hand, the diminished importance of economies of scale and scope particularly as they relate to marketing competency means that pharmaceutical firms will no longer realize the same benefits of offering such broad categories of therapeutics. Fragmentation and specialization around specific disease classes may prove to be a better organizational industry structure in the age of personalized medicine. Adoption of personalized medicine requires a significant shift in pharmaceutical firms’ business strategies, as pharmacogenomics-based products cannot be mass-marketed, personalized medicine outdates the one-drug-fits-all solution approach. The variation in customers’ genetic make-up creates heterogeneity of demand, resulting in more targeted products with smaller markets. Given that economies of scale and scope are at the heart of the pharmaceutical business, the rise of personalized medicine undermines pharmaceutical firms existing strategies.

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“Adoption of personalized medicine requires a significant shift in pharmaceutical firms’ business strategies…”

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Complicating this scenario further, personalized medicine must be accompanied by significant changes to the regulatory environment and legal accountability for drug safety. Today’s business models, which have made the fortune of the large pharmaceutical firms – could become tomorrow’s liabilities, hampering the on-going performance of the currently established global firms. In this scenario, only the firms that have invested in pharmacogenomics and personalized medicine will survive. Custom-design treatments will be offered to patients by matching their genetic profile to large knowledge-bases. Diagnostic tools will be used to follow the evolution of the disease at each of its stages.

New players will be able to enter the market by offering innovative and breakthrough solutions in niche markets. The pharmaceutical market is shifting from a mass market to a market of many specialized products. For pharmaceutical firms, it will mean leveraging the pharmacogenomics technology to improve trials design in order to reduce cost and duration. Pharmaceutical firms will also have to develop a more patient-centric approach of delivering drugs as patients may start to demand the same kind of attention that they are getting from personalized medicine.

After many years of restless new product introductions, outstanding financial performance, and double-digits growth, the pharmaceutical industry is reaching the limits of its current business model. From a drought in product innovation, to increasing pricing pressure and a worsening regulatory environment, it seems that large pharmaceutical firms will have increasing difficulty in staying on the same path. However if you really drill down, a huge industry changer will be the companies who fully embrace epigenetics into their drug development process as epigenetic markers open new avenues for an early detection, diagnosis, prognosis as well as therapeutic targets. However, I will leave this for my next article.